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Infrastructure borrowers turn to bonds — but loans still dominant

Jan 27, 2014

The funding dynamics for Latin America’s sweeping infrastructure deficit are changing sharply, say project sponsors and investors

Project bonds are increasingly stealing market share when it comes to financing LatAm infrastructure, yet bank lending remains the main source of funding for such operations.

Spanish engineering, construction and infrastructure conglomerate Acciona focuses first on capital markets financing when it looks at funding for any new project, Roberto Ventura, the firm’s finance director, told LatinFinance.

"We are trying to reduce our reliance on bank financing as a result of the increasing reluctance of banks to provide long-term financing, and our aversion to refinancing risk as well as our goal of reducing exposure to Spanish and European banks," Ventura said.

Pension funds and other institutional investors in Latin America are emerging as a fast-growing source of financing for infrastructure bond sales. "For issuances in local currencies in countries such as Peru or Mexico, local pension funds and insurance companies have been the dominant players," said Jean-Valery Patin, head of Latin American project finance at BNP Paribas.

Nonetheless, the size of many project bonds can keep big institutional investors away: "LatAm project finance bonds tend to be quite small," said Bianca Taylor, an emerging market credit analyst at US asset manager Loomis, Sayles & Company.

"We normally look at bonds that are at least $500 million in size, where we stand to get a decent allocation."

Bank loans also have other advantages, says Acciona’s Ventura: "Many investors are still relatively unsophisticated and need some support to mitigate some risks they do not understand or are unwilling to take. There is where the role of banks may be crucial." LF

See the full article in the latest edition of LatinFinance: Financing innovation: The way back

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